Friday, June 15, 2012

Ukraine’s options continue to narrow

Euro 2012 may be keeping Ukraine out of international isolation for a month, but were it not for the championship, Ukraine would be right on the fast track to obscurity. Almost every supra-national body is becoming wary of its dealings with Ukraine, and Ukraine’s threat of turning to Russia may be increasingly tolerated in those circles, whilst in such a situation Moscow will drive the hardest bargain it can with Kiev.

The European Parliament’s most recent resolution on Ukraine (although the EP does not have competence, in the technical sense, on foreign policy) gives the general flavour of the way things are going: “Ukraines human rights record, its respect for civil liberties and fundamental freedoms and for the rule of law, with the incorporation of fair, impartial and independent legal processes, and its focus on internal reform are prerequisites for the further development of relations between the EU and Ukraine.” Or read another way, Ukraine’s ever-increasing lack of it more or less puts a hold on further European integration, whether the President declares a ‘pause’ or not. Ukraine’s conduct has actually forced the EU to redefine the whole Association Agreement dialogue. From being a largely technical process the proceedings have, almost by necessity, now taken on an implicitly political character.

There is still some tinkering going on to try to save face. The phrase ‘political detainees’ was softened to ‘prisoners sentenced on politically motivated grounds’, owing to Ukraine's request to the Council of Europe to define ‘political detainee’, which it declined to do. However, for all the technicalities, Tymoshenko is clearly the deal breaker (not necessarily rightly), and on its chief demand it looks as if there will be no joy for the west. The ‘anachronistic’ laws that put her there have not been repealed and the queue of new charges may be a bid to prevent even the European Court of Human Rights giving her a clean slate. Personally I’m not so sure that her staying in prison is simply the personal vendetta of other politicians, but rather a pragmatic move, seeing as her time in office allegedly lost certain individuals large sums of money. A freed Tymoshenko back in office might block revenue streams to certain individuals, and that’s money, after all.  

With the EU relationship bringing only bad cheer, Ukraine hoped the NATO Summit in Chicago would be an avenue for more positive developments but, in the end, most of the delegations refused to have meetings with Yanukovych. Of those that did, Poland and Romania chastised Ukraine over the political prisoners issue, leaving only Afghanistan, where the focus was simply on reconstruction projects that Ukraine could gain there. NATO also joins the EU’s chorus, in the summit declaration, over ‘selective applications of justice’. Meanwhile, there were signs that Georgia, for example, is slowly inching towards membership, even despite its territorial issues. NATO will still co-operate with Ukraine where it needs to, for example with the use of Ukraine’s helicopters, but from the ill-deserved positive publicity given Yanukovych for Ukraine’s nuclear disarmament (a free gift from Obama), Ukraine’s role this time is more as an extra than as a star.

So with the EU relationship crumbling, the IMF out of the picture, and NATO getting lukewarm, we are left with the opaque and baffling dealings between Ukraine and Russia. Following the Russian ban on Ukrainian cheese and the tit-for-tat (sort of) ban on Belarusian dairy products (vive la Customs Union!) things seem to be settling down there. Of course, the main discussion is one of gas.

Firstly, there are the contracts that Tymoshenko supposedly ‘illegally’ signed, but which Ukraine doesn’t seem to be able to get itself out of, with not even initial signs of a Russian shift in position. The Black Sea Fleet deal of 2010 was seemingly for nothing. Yet, with the lack of other options, Ukraine is still trying to cut a deal with Russia.

The old chestnut of the tri-partite ownership of Ukraine’s gas pipelines is being trotted out once again. This, in the end, would also most likely yield nothing in return. The whole concept of the ‘EU share’ is nonsense to start with. Pipelines are not operated in the EU as geopolitical concerns. Countries do not own pipelines and there is certainly no precedent for supra-national ownership of gas pipelines, so what we are talking about is two thirds ownership by the Russian and Ukrainian state, and one third ownership from a company or consortium from the EU, and that invites most likely a deal with Gazprom.

That leads onto the second drawback, which is that even if Ukraine’s drive for shale gas extraction is successful (and awarding concessions in a relatively straightforward way to Shell and Chevron was a good start), Ukraine may find itself unable to realise the potential of shale gas if there are restrictions on its distribution because of unhelpful pipeline operators owing to an ill-conceived, short-termist pipeline deal. To add to this, experts say Russia is unlikely to even pay the proper market price for the GTS. Ukraine fears the loss of transit traffic, but because of a European Commission stipulation that no more than 50% of the gas through Nord Stream can be Gazprom’s, Gazprom will still need Ukraine’s gas transit for the time being.

There are also various permutations that are largely unforeseeable, and here is mere speculation. If Russia can in future put most of its gas through Nord Stream and South Stream, and if Ukraine is by then pumping out shale gas, won’t it then be just a hindrance to have Russian involvement in Ukraine’s GTS. As an aside, what will be the effect of shale gas extraction being successful. One fear is that it might in fact all be exported, and the profits used in exactly the same way as Gazprom’s are, to support a ‘Putin-lite’ in Ukraine. After all, the lack of imagination of Ukraine’s rulers invariably leads them to look to Russia for inspiration.

As one commentator wrote recently, Ukraine perhaps overestimates its geopolitical importance. When push comes to shove, the west already has plenty of friends on the Black Sea. Russia’s interest is as chauvinistic as it is strategic (surely, in theory, a new modern naval port on Russia’s own Black Sea coast would be far more efficient and pertinent to Russian national security than maintaining their ‘museum’ in Sevastopol, but when a feeble pretension to a naval port in Syria is enough to sanction the deaths of thousands of people, we know that common sense is not at work here).

Ukraine’s problem will be that, if the elections this October fail the democratic litmus test, it matters less and less what foreign policy direction Ukraine proclaims. If the standards of democracy, rule of law, and management of the economy converge ever more closely with those of the member states of the Customs Union, then that may be the country’s default destination.

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